Since joining NEA, I have been part of a dedicated focus to increase, support, and promote diversity within the firm and our portfolio. While we have still have a long way to go, I am proud of the excellent group of female founders in our portfolio. One specific sector in our portfolio, the Direct to Consumer (D2C) sector, has many companies that are breaking out and changing the landscape of their respective industries (think: Mejuri, goop, Tamara Mellon, Willow, etc…). We’ve recently seen some creative collaborations across these brands and that’s when the lightbulb went off—there is an opportunity to create a community for these incredible founders where they can compare notes and find new ways to collaborate.
A few teammates and I put our heads and networks together to gather a group of like-minded peers from inside and outside our portfolio for an energizing and inspiring brunch session in Southern California.
We were fortunate enough to have Romitha Mally, Vice Chairman of Investment Banking for UBS, join us for a valuable discussion that ranged from brand loyalty to bottom lines. Romitha has a stellar reputation for partnering with founders to tell compelling brand stories that lead to successful mergers and IPOs—her talent and track record earned her recognition as one of Fast Company’s Most Creative People for 2019. It was incredible to partner with Romitha for a discussion, drawn on her expertise on the paths toward IPOs and M&As, to inspire a room full of rising D2C stars. Here’s what we learned…
Lasting Brands Have Loyal Customers
Many startups claim that they are building a brand which implies that it has staying power. The real proof that a brand is emerging isn’t the number of units sold, nor the revenue, nor their margins, it’s actually the repeat rate, engagement, and long-term retention. Of course, you still need to have a sustainable business model which includes the former metrics, but those metrics don’t imply staying power. Lifestyle brands transcend fads and they have the data to prove it.
Your Community is Your Product
The previous generation of brands assumed that the physical good delivered was the entirety of the product. This next wave of new consumer brands understand that the physical product is just half of the equation with the community behind it as the other half. A successful brand community creates meaning and is an important part of the customer experience, one that everyone benefits from. Customers have a sense of belonging and become valuable ambassadors, in return companies can leverage these communities to collect feedback, content, and develop better future products.
Tech Company vs. Tech-Enabled Company
The market is wising up to tech-enabled companies trying to pass as tech companies. There’s nothing wrong with being a tech-enabled company where the tech is what enables you to deliver a superior product and customer experience, but this is different than being a true tech company. This recent trend toward identifying as a tech company is meant to yield higher valuations, but it is important to remember that tech returns and retail returns are not created equal. Public investors know this, and the valuations eventually reflect actual sector the companies are in. In the end it is better and healthier to own who you are as a company than to try to be something you are not.
The Market Pendulum Swings
Market trends go back-and-forth between favoring growth and favoring profitability. We’re in an environment where public market investors are focused on a company’s path to profitability and that changed radically and quickly this year. It is vital for founders to think about their path to profitability from the very beginning and revisit it often along the way. During an IPO process, investors want to feel confident in a CEO’s ability to exercise control, evaluate trade-offs and articulate a clear timeline to profitability versus highlighting unsustainable growth.
M&A—Not Faster, Not Easier
There has been a growing misconception that M&As are somehow easier and a good back up plan to an IPO—this could not be further from the truth. M&A transactions are just as time consuming and risky as an IPO—just in a different way. Large acquirers can be slow moving and there are added complexities to consider around synergy and alignment between the startup and the parent company. Still, there are many important benefits to consider with regard to M&As such as a faster path to scale, better supply chain, and better unit economics. Although M&As may not be the easier or a more newsworthy path, they can often be the better option in terms of financing and business sustainability.
Our goal in hosting this event was to create connections and spark inspiration among the attending founders, but what I didn’t count on was how much they would in turn inspire me. It was way more impactful than we anticipated—hearing lessons learned and best practices being exchanged so freely. I came away energized by the achievements and limitless potential of the founders in the room. I look forward to bringing this awesome community together again, and I can’t wait to see the relationships that develop and collaborations that arise beyond the brunch.